Yet despite the challenges I faced, I felt a real sense of accomplishment and even a self-esteem boost after finally making my first NFT purchase. I also felt a real urge to do it all again. Fast-forward a few months and I now own eight NFTs, follow multiple NFT projects on Twitter, and have even joined a few NFT Discord communities. I’m much further down the rabbit hole than I intended to be, and am more invested (financially and mentally) in the space than I anticipated.
My experience, including observations and interactions I’ve had in the space, got me thinking about the psychology behind NFT buying. For this follow-up article, I’m going to dive into my own brain to figure out how I went from academically trained sceptic, to NFT ‘degen’ (lingo for people who buy into emerging NFT projects early). There are many factors at play that could (and should) be explored. For now, I’ll focus on two of the biggest: FOMO and social belonging.
Fear Of Missing Out (FOMO) is arguably the most obvious psychological driver of NFT buying. In fact, it is such a prevalent factor that it has even become a verb; NFT buyers often talk about ‘FOMOing in’ to an upcoming or new project to describe having made a recent purchase.
As I’ve written about previously for Inside Retail, FOMO has evolved from a slang term found in memes to a legitimately researched phenomenon. Academic studies have defined FOMO, detailed how to measure it, tested how and why it occurs, and even experimented with different FOMO-related marketing appeals to drive sales. In academic terms, FOMO is the sense of anxiety we feel if others are doing something we aren’t, or have something we don’t. From this definition, it’s clear that FOMO relates to scarcity; if something is limited in supply, there is more risk of missing out. This explains why limited time or exclusive deals like ALDI’s Special Buys are so appealing to consumers.
NFTs play on scarcity, and the FOMO scarcity creates, in multiple ways. The most obvious is that most NFT collections only create (‘mint’) a very limited selection. It is common for projects to make only a few thousand NFTs available, yet have tens or even hundreds of thousands of potential buyers on their waitlists. Through simple numbers, most interested buyers are going to miss out.
The FOMO is enhanced by how many projects reward initial or early buyers – those who are part of the initial ‘mint’. Because of how a blockchain tracks transactions, it is easy for anyone to see who originally minted each NFT that exists, as well as everyone who has ever owned it. Wallet addresses are also public, meaning that creators can send rewards to original, current, or past owners at any time. This is known as an ‘airdrop’, and the rewards could range from other NFTs to unique badges, or even cryptocurrencies. So, FOMO exists in relation to both being one of the few to own an NFT at all, and to owning one before the next random airdrop occurs.
All this FOMO creates a drive to be early on a project by knowing about it before others do, or even following various requirements to make it onto a ‘whitelist’ – akin to being part of a pre-sale. The result is that popular products sell out their original mints extremely quickly. Then almost immediately, a robust secondary market (at higher prices) emerges. It is similar to when sneaker brands release a new limited-edition shoe – just at a bigger global scale through digital networks.
While some users race to be early buyers to take advantage of the resale market or extra rewards, others do it for the social benefits. Being early on a project that becomes popular brings substantial social capital, in addition to the product itself – which leads to the next big psychological driver of NFT buying.
Community and social belonging
Social belonging is a core part of Abraham Maslow’s famous hierarchy of needs, coming just after physiological needs (water, food etc.) and safety, and even before our own self-esteem. In other words, once we have food and somewhere to live, our next driving force is finding a social group where we can belong. This social belonging is a huge driver of NFT purchasing, and is currently the main value of many popular collections. Many NFT projects are years away from even attempting to deliver the outcomes they have laid out on their roadmaps. Yet, their collections have sold out years in advance, primarily because buyers want to be part of the community with other owners.
The Bored Ape Yacht Club (BAYC) NFT collection is a classic example of this. The original price to mint an ape in April 2021 was just under $300 worth of Ether. Less than a year later, the cheapest ape available on a marketplace is listed at over $250,000. There are some non-social benefits to ownership; owners have some licensing rights over their apes, and there was a game where owners could use their apes to battle other owners for small rewards. What most buyers are really paying for, though, is to be part of ‘the club’ with other like-minded consumers and the celebrities, athletes, business owners, and influencers who also own apes – Justin Bieber, Eminem, Jimmy Fallon, Snoop Dogg, Paris Hilton, Steph Curry, and Neywar just to name a few. Owning an ape comes with invites to exclusive meetups (both virtual and in the physical world), concerts, and even an actual yacht party with this community.
My own experience of the NFT community was admittedly smaller in scale, but equally powerful. When I posted about buying my first NFT (a Jimmy Rees GIF of ‘Shut Up Jason’) I was inundated with other NFT buyers (influencers, athletes, and founders among them) congratulating me and welcoming me into the NFT world. Even though I’d bought a relatively small-value NFT for fun, I felt a small sense of belonging to a broader community – which validated my purchase and left me wanting to explore what else the community had to offer. I took the opportunity to ask for recommendations of NFT projects that would fit a 30-something father-of-two academic who is a gamer, superhero nerd, and NBA fan in my (very limited) spare time.
That’s how I discovered the community around Guild of Guardians (GoG), an upcoming play-and-earn RPG mobile game from Sydney-based Immutable. It will be a fantasy RPG game published by an Australian company, and the marketing manager is a big NBA fan. It sounded like a pretty good fit for me. So, I joined the community (by connecting to its Discord server) and started chatting to people and asking questions. I was amazed by two things: 1) Despite the game being 12-18 months away from full launch, the community has over 100,000 members, a full-time community manager, and nearly 20 volunteer moderators. 2) despite being a complete newbie, I had multiple other members welcome me, answer my questions, and point me to both official and community-designed guides. One member even sent me a few dollars to finalise a purchase I was trying to make after I miscalculated the exchange rates. I’ve now joined a Guild (a portion of the community who plan to play together when the game launches) called Oh Canada Eh, primarily because the leader (a user who goes by Tomahawk) was so welcoming and helpful to me as a new member.
I’ve seen and participated in a variety of brand communities and have been part of some of the growing academic research about how to foster brand engagement. Yet I’ve never seen the level of community-led engagement that I’ve experienced so far in the NFT space. It is particularly remarkable given that most NFT projects don’t yet have functional utility beyond profile pictures. Yet they still have engaged community programs fostering strong social belonging for consumers. It is an interesting dichotomy to traditional retail brands, where community often comes after (or because of) engagement with the core product. In contrast, for NFTs, the community often is the real product, with other functional benefits added later (if at all). Given how powerful the psychological need for sense of belonging is for consumers, retail brands aiming to get into the NFT space could learn a lot about the community side of NFTs, beyond offering digital products themselves.
As I mentioned above, there are many psychological factors at play in the world of NFT buying. While FOMO and social belonging are two of the biggest, I’ve already observed other classic psychological factors, such as expectation-disconfirmation, cognitive biases, the fallacy of equating price with value, and operant conditioning. Even knowing what these drivers are and how they are impacting my decisions, I still feel myself getting pulled deeper down the rabbit hole. Who knows what else I will discover about the space, and myself, as I dive in further. I’m excited to find out.